Should I Buy a Second Home or an Investment Property?

Is it time for a little getaway? Maybe you’re looking for a new, exciting way to invest for your future. If either of those apply to you, keep reading! Occasionally, buyers purchase a home with the intention of using it as a either a second home or as an investment property. While the processes for purchasing a second home or a home to use as an investment property are similar (and don’t differ much from the usual mortgage process, either), there are a few key differences and some benefits that make these kinds of purchases unique. In this post, we will explain the similarities, the differences, and how each may benefit you.

How are they similar?

The main similarity between second homes and investment homes is that neither can be listed as your primary residence at any point in time. Both also may come with certain tax benefits. These benefits include mortgage interest being used as a tax deduction in the case of second home loans, and the cost to upkeep the property being a possible tax write-off in the case of investment properties.

How are they different?

If you’re thinking of purchasing a second home, it’s usually with the intention of using the property as a vacation home or another place where you can comfortably spend a good portion of your time. That is all well and good, but you should know that most lenders will only consider a property a second home if it is at least fifty miles from your primary place of residence. That means if -for example- you’re making a thirty-minute commute every week and want to buy a second home closer to your place of employment, you will not be able to purchase a second home in that location. Additionally, you can only own one second home in any given area. If you purchase two homes close to another and try to claim both as a second home, you may be told to consider one of the homes as an investment property.

Investment properties, however, are not meant to be used as residences by the buyer; this means you will not be able to stay for any great length of time in the investment property for as long as it’s financed as an investment property, but unlike second homes, there is no requirement concerning a minimum distance from your primary residence. Investment properties may be either a residential rental property, a commercial property, or a property purchased with the intention to “flip” it once the pre-designated amount of time required to pass between sales of a home has passed.

The Benefits: Second Home

The immediate benefit for purchasing a second home in a location you visit frequently is no more hotel reservations! Instead, you get to build equity into a home that you own. Also, financing for a second home is usually a bit more lenient as second home mortgages are viewed as lower risk than loans for investment properties.

The Benefits: Investment Property

Investment properties may be used by their buyer infrequently; in fact, they are designed to be rented out, and this can be a benefit to you as a buyer. Being that rent for an investment property is paid monthly, it serves as a consistent form of income especially if the rental payment is higher than the monthly mortgage payment. Done correctly, investment properties may yield a better return than some CD or savings accounts. If you decide to use a property management company to manage the renting out of the investment home, you may be able to write it off when you file your taxes; this might also be true of certain other property related expenses.

There is much more that goes into buying investment and second homes, but at Southern Trust Mortgage we have all the information you need to make an informed decision about your purchase. Contact us today to speak with one of our loan experts and let us help make home (be it primary, second, or investment) happen for you!